Goldman Warns, Congress Is Preparing To Tame The Fed

Having already warned that looming political uncertainty is not at all priced-in to US equities, Goldman's Alec Phillips points out that legislation was introduced earlier this week (July 7) in the US House that would attempt to revamp the FOMC's monetary policy process. The bill would require the FOMC to justify to Congress each policy decision relative to a Taylor rule specified in the legislation. While Goldman, do not expect the bill to get very far, but the issue does appear to be a growing focus for some lawmakers and we expect further action on it in the near term.

Via Goldman Sachs,

Legislation was introduced earlier this week (July 7) in the US House that would attempt to revamp the FOMC's monetary policy process. The bill would require the FOMC to justify to Congress each policy decision relative to a Taylor rule specified in the legislation.

These proposals may attract some attention as they make their way through the legislative process, particularly since the House committee seems likely to pass the bill in the next few weeks. However, the bill is less likely to pass in the full House of Representatives before the November election, and it seems to us very unlikely that the Senate would consider it this year so the probability of enactment appears very low.

Earlier this week, two members of the House Financial Services Committee, Reps. Huizenga (R-MI) and Garrett (R-NJ), introduced legislation that would impose new requirements on the Federal Reserve and the FOMC. We do not expect the bill to get very far, but the issue does appear to be a growing focus for some lawmakers and we expect further action on it in the near term.

The bill presumes a Taylor rule for the Fed

The most important change the bill proposes would be to require the FOMC justify its policy decisions to Congress with reference to a Taylor rule. Specifically, the bill would establish a new requirement that the FOMC submit to Congress a report on monetary policy within two days after each FOMC meeting. The report would include a detailed quantitative description of the policy rule the FOMC is following, including whether the fed funds rate, the rate of interest on excess reserves, and/or the discount rate is being targeted, and how the targeted values would change under different inflation and GDP assumptions.

The bill would require the FOMC to explain its own policy rule in relation to a rule like the one Stanford Professor John Taylor described in 1993, where the nominal federal funds rate equals 2% plus the sum of (a) the inflation rate over the prior 4 quarters, (b) one-half of the estimated output gap in percentage terms, and (c) one-half of the difference between the rate of inflation over the prior 4 quarters and 2%. To the extent that the policy rule the FOMC submits under the requirement does not conform to this reference rule, the FOMC would be required to submit a "detailed justification" of the departure from the rule. The legislation would require the Government Accountability Office (GAO) to conduct an analysis and report to Congress on whether the FOMC had complied with the requirements laid out in the legislation. If the FOMC were found to be out of compliance with these requirements, the Federal Reserve Chair would be required to testify in Congress and the FOMC would be subject to an audit by the GAO.

The practical implication of the bill would be that while the FOMC could continue to operate as it currently does, if it opted out of the process established in the bill it could become subject to periodic audits and the Fed chair would have to testify before Congress quite often, potentially after each FOMC meeting (the bill, in a separate section, would increase the semi-annual Humphrey Hawkins testimony to four times a year in any case). In the past, Fed officials have been clear in their opposition to prior proposals to require an audit of monetary policy decisions and we assume the Fed would oppose the recently introduced legislation though we are not aware of any specific comments from the Fed on it.

Further near term action seems likely but enactment is unlikely

The Committee held a hearing on the legislation today (July 10). No vote has been scheduled yet, but we expect the House Financial Services Committee to vote on the bill in the next few weeks. We assume it will pass along mostly party lines. Whether it will receive a vote on the House floor is less clear, since the legislative agenda will be crowded during the limited time Congress will be in session in July and September (the House will be in session for only 25 days between now and the midterm election on November 4). More importantly, regardless of whether the House passes the bill or not, there appears to be very little chance that the Senate would consider, let alone pass, the bill this year.

Next year, if the Republicans manage to take the Senate majority following the midterm election, there might be somewhat greater pressure to hold a vote in that chamber if the House were to pass the legislation. However, even in this case it is far from clear that there would be sufficient support in the Senate, where 60 votes are normally required. Moreover, in the unlikely event that such legislation managed to pass in the Senate, we would expect President Obama to veto it.

Of course, it would not be unprecedented for Congress to amend the Federal Reserve's mandate regarding monetary policy, though it happened only rarely. The last time Congress enacted significant new monetary policy-related requirements was in 1977 and 1978, when Congress reworked the Fed's mandate, required the Federal Reserve Chair to testify semiannually to House and Senate Banking Committees, and established a four-year term, confirmed by the Senate, for the Federal Reserve Chairman and Vice Chairman, among other changes. However, not only was the economic situation different at that point, the political situation at the time very different from the current one as well: both chambers of Congress were controlled by the recently elected President's party, while the Fed Chairman had been appointed by the prior administration.

There has in fact been some bipartisan support over the past few years for much simpler legislation first offered by Rep. Ron Paul (R-TX) to remove the prohibition on GAO audits of monetary policy deliberations. That said, support for more recent efforts appears to be falling along party lines more than it used to. For example, while Rep. Paul's legislation passed the House in 2012 by a vote of 328 to 98, a nearly identical version of that legislation in the current Congress has been co-sponsored mainly by Republicans. The upshot is that while the issue seems likely to remain a subject of political interest among lawmakers, these sorts of policy changes appear unlikely to be enacted into law in the foreseeable future.

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The simple question we have is - why is Goldman Sachs bringing this up now?

Suitcases of cash and diamonds, and a bill called "Federal Reserve Control Act" that gives the FED more control over rewarding banks/corporations/insurers while punishing savers and citizens - if history is any guide.

What do you think the monetary order behind a unified North American currency will be? It's time to roll out a new system because the old one is so bad. No that bad though that we can't employ/empower the same scoundrels who were responsible for the old system.

Unless there are many swinging from lamp poles, any change in the current monetary order will be mere window dressing.

Jesuits are scum. They are the biggest shit disturbers on the face of the planet. Sadly, few are willing to investigate for themselves and see actual evidence. Religious and non-religious are both easily led to believe the magical Joo is the prime world shit disturber. The Jesuits and their satellites created the UN and the UN created te latest incantation of Israel so how can the magic Joo be in charge? These powerful rich guys all sat on the sidelines for over 1900 years? Did the Joos run the Dark Ages and the inquisition? But most don't let facts get in a way of a good story. By the time everyone figures it out, maybe a few good ZH souls will remember these posts and think things through and put the puzzle together.

The United Nations Headquarters complex was constructed in stages with the core complex completed between 1948 and 1952. The Headquarters occupies a site beside the East River, on 17 acres (69,000 m2) of land purchased from the foremost New York real estate developer of the time, William Zeckendorf, Sr.Nelson Rockefeller arranged this purchase, after an initial offer to locate it on the Rockefeller family estate of Kykuit was rejected as being too isolated from Manhattan.

The US$8.5 million (adjusted by inflation US$83.4 million) purchase was then funded by his father, John D. Rockefeller, Jr., who donated it to the city.[6]Wallace Harrison, the personal architectural adviser for the Rockefeller family, and a prominent corporate architect, served as the Director of Planning for the United Nations Headquarters. His firm, Harrison and Abramovitz, oversaw the execution of the design.[7]

El Oregonian and Crawdaddy have proved one thing at least. When you start to unmask the faces of those who are behind those who are behind the general chaos and disintegration of society at all levels, be ready for heated opposition by those who are either ignorant of the facts, deceived by the lies, or both.

The papacy has hated the protestants with a venomous hatred, and thus has hated the United States which was the great bastion of freedom from Rome's tyrannical persecution. Due to their subterfuge, the Jesuits have been expelled from practically every country in Europe at one time or another. For anyone interested in taking the time to look into it there are interesting articles linking together Rome, Jesuits, Rockefellers, hatred of Protestant America, oil and money.

"Ye shall know the truth and the truth shall make you free" (Jesus' words in John 8:32)

Congress is doing dick to stop the dick-tater from allowing a full invasion of Amerika. Matt Salmon (R) at least put up a bill to spend the money to send these people back to their families in their home countries.

This is when it gets fun because it will be apparent that neither the red team nor the blue team will want to tell the Fed what to do. Expect the word "independence" to be thrown around liberally (pun intended).

Fuck the Fed...
and fuck the politicians they command...
if we turn our back on the MoneyChangers worthless script and ignore the government they control they both will fade away...
we give them relevance and power by honoring their farce...
and we can remove it and them via withdrawing from the debt and death paradigm that has ruined humankind...
it can be done starting with saving in real money and starving the banks...

no i dont because your statement is of fear and at this stage of the war i have none...
therefore, the prospects you mention above r of no consequence...
that is why most will remain slaves of the bankers and their government....
do you understand YOUR problem now?

It's funny because for years (since 1987), it was Harry Reid who sponsored and supported legislation to "audit the Fed" and lambasted Republicans for railroading it. Then the winds of politics shifted....

Harry Reid: Audit the Fed (the first one is his '95 Senate floor speech - and he makes a damn good case):

we need a super Katrina like hurricane to blow the fucking shit out of D.C. and the surrounding areas....and douche out every single stinking motherfukcing political and lobbyist cabal, along with the MIC pricks sucking the marrow out of the taxpayers....and swamp them out to sea....

That was hard to believe until I read it with my own eyes. Krugman is a study in evil, removed from the human condition across an immeasurable abyss of flaming perdition, leading astray the feeble-minded and foolish alike.

Foreplay is over. Now the Fed will be officially controlled by the gov't. The Fed can have their minutes, they can have their opinions, but in the end they will do what big daddy gov't tells them. The only thing new is that it will be a bit more out in the open.

After a sudden 'rush' from seeing the headline, I quickly said 'meh' as I read and saw the Taylor rule. Mr. Yellen will simply invent some economic gibberish and say 'that's it". There are a couple of things that Congress could do that would make a difference, but you are not likely to ever see them:

1. Remove the 'employment' co-mandate that lets the Fed meddle in the economy -- instead tell them to keep the currency strong.

2. Audit the Fed - let's see what crap they bought

3. Let's peek in Fort Knox.

4. Restrict the assets that the Fed can hold

And while these assume the Fed is still around, the best choice would be:

Here's a novel ideal? How about we reeducate the schools with a fast-track empirical? scholastic pamphlet (a text book for grades 3-7, if they havn't already burned them all with the .00001% blessings [oligarchy]!)about savings, and compound interest!

Shit, I can remember as if it were yesterday... how, in 2nd or 3rd grade they (the banking community came to lecture) gave us all passbooks for savings, which we brought home and had our parents sign-off on.

Every tuesday was deposit day of a dime, quarter, or, if you were a well-2-doo, you had a buck. But, mostly all us kids got two-bits. The text books also taught us how to be young entrepreneur's, such as purchasing a snowblower, or a good a snow-shovel and/ or lawnmower {(geography)(having and knowing the basics [pitfalls/profits] for realizing a substantial gain from your initial investment [via, hard manual labor] as a bonifide capitalist)} investment for a family (the key was to kiss-up to your neighbors and not get greedy-- asking to much for your services) orientated clientel in your neck-of-the-woods neighborhood. Or, even a paper route!

Currently: The Rothschild family owned or had ownership of all textbooks in the USSA, via the (MHP) Texas Scolastic Assoc. for Public School Literature & Learning.

I'm not sure if I have the name above correct, but the publicly-traded name of the publisher is 'McGraw-Hill' (MPH).

Botom Line: educate, education, moar re`education, starting when the kid's are young so mom and dad will have to answer some tough questions when these kids start wondering how to buy and purchase,... as future consumers?

To amend the Federal Reserve Act to establish requirements for policy rules and blackout periods of the Federal Open Market Committee, to establish requirements for certain activities of the Board of Governors of the Federal Reserve System, and for other purposes.

5. Frequency of testimony of the Chairman of the Board of Governors of the Federal Reserve System to Congress
(a) In general

Section 2B of the Federal Reserve Act (12 U.S.C. 225b) is amended—
(1) by striking "semi-annual" each place it appears and inserting "quarterly"

7. Economic analysis of regulations of the Board of Governors of the Federal Reserve System

(B) Additional considerations

In addition, in making a reasoned determination of the costs and benefits of a proposed regulation, the Board shall, to the extent that each is relevant to the particular proposed regulation, take into consideration the impact of the regulation, including secondary costs such as an increase in the cost or a reduction in the availability of credit or investment services or products, on—
(i) the safety and soundness of the United States banking system;
(ii) market liquidity in securities markets;
(iii) small businesses;
(iv) community banks;
(v) economic growth;
(vi) cost and access to capital;
(vii) market stability;
(viii) global competitiveness;
(ix) job creation;
(x) the effectiveness of the monetary policy transmission mechanism; and
(xi) employment levels.

To authorize appropriations for fiscal year 2014 for intelligence and intelligence-related activities of the United States Government and the Office of the Director of National Intelligence, the Central Intelligence Agency Retirement and Disability System, and for other purposes.

Maxine Waters et al didn't end up in their seats in Congress accidentally. Taken individually, Americans like their congresscritter a lot better than they like Congress. Actual morons, alongside cleverer sociopaths, stay in office for decades, with a paid entourage of servants and wonks with lobbies a mile deep doing their work, such as it is.

If US States tried to Secede from the Union, the Federal Reserve and TBTF Banks would have to Induce the US Congress & US President to go to War with Full Military Equipment.

The Reason is that the Credit and Expansion of US Public Debt and Wall Street's Financial Products would be devalued or down graded by international banking. They would have to slow down the expansion of US Dollars globally.

They could not accept that.

The reason this is a big deal is that I was thinking that US Citizen Soldiers & Private Military Contractors that are US Citizens would not fight "Our Own People" with Military Force.

and janet yellen is looking a bit like the woman at GM, there to put a soft face on a brutal hatchet job, in the case of GM the stock says MOAR, and no matter what happens the fed isn't going anywhere, or at least the illegal and immoral policies, though some of them may actually come up for review, such as the lets rob the savers and expand credit for subsubprime borrowers policy, and run a trickle down economy of free and easy money filtered through the 1%. as Hussman cried, the fed is making fiscal policy, barely had he spoken than the EU IMF and Fed allied forces moved on to foreign policy, (in Ukraine) the fed may be leaving but the fed policies are still in ascendency. nothing we can do about that really, its like watching a world war develop. the biggest lie anyone has ever told, as members of a democracy we shape our own destiny.

The Reason we let the Elites Rule is partly the old meme from the Cold War and the Memory of WWII. We have the Russian Communists and Chinese Communist Terrors who are trying to take over the world, make the USA a communist country, and Destroy our Freedom.

Therefore, we have to have Strong Intelligence Operations, Many Intelligence Agencies, Strong Naval, Air, and Land Forces, a strong Network of Allies, the most devastating weapons, active and rigorous military training programs, wars every 20 years to test our men and teach our children our doctrine.

We can't trust "Joe the Plumber" to lead this nation in war against the Commies.

Well...after GWB & Obama, 16 years of failures, maybe Joe the Plumber would save us from total destruction.

After the British Military Empire ended, it seems the US Military Empire started with more emphasis on spying, proxies, and finance. We can buy our allies and even train them as young officers before we put them in power.